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Politics & air wars expected to hit Flight Centre's profits

Elections, air competition and investments are believed to have impacted Flight Centre's profits for the full 2015/16 financial year.

Elections, air competition and investments are believed to have impacted Flight Centre’s profits for the full 2015/16 financial year.

 

This week, the travel group downgraded its underlying profit before tax (PBT) guidance for the 12 months to be about four-to-eight percent under the initial guidance and around two-to-five percent down from the $366.3 million PBT earned during 2014/15.

This comes despite emphasising that the company is on track for another record year in sales, as all countries and regions track towards new milestones.

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Managing Director, Graham Turner, attributed the expected drop to four factors – the upcoming federal elections, airfare price wars, poor US leisure trading and investment in new companies.

He said due to uncertainty during the final six weeks of the year, he can’t forecast how severely these factors have impacted profits.

“While we will be disappointed to miss the short-term profit target we set in August last year, we are investing significantly in our future and in strategies that will underpin our longer term growth.”

Graham Turner, Flight Centre Managing Director

On a positive note, Flight Centre says investing in relationships with budget carriers such as Tigerair has contributed to a solid increase in sales. Meanwhile, new acquisitions like its recent purchase of StudentUniverse.com are performing strongly and are likely to contribute to future profit.

“While these investments are ongoing, we are developing strong platforms and are now starting to see tangible returns,” Turner said.

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Although heated air competition is having short-term adverse impacts on Flight Centre, Turner said he expects these air wars to have a positive effect globally.

He explained that discounted fares deliver “incredible value to travellers” and help stimulate demand.

“It’s impossible to predict how long these eye-catching fares will last or if we will ever see them at these levels again,” he added.

Flight Centre’s full year accounts for 2015/16 will be released on 25 August 2016.

Are you surprised by Flight Centre’s change in expectations?